A Big Challenge for Many Traders

What do you do when certain strategies that you learned are not working
anymore, asks Joe Fahmyof JoeFahmy.com, as he wrestles
with a dilemma faced by many traders.

When it comes to analyzing the market and deciding how much capital to
commit, everyone has different strategies. For me, I learned many of the
principles taught by Jesse Livermore and William O'Neil. Specifically, follow
the price action of leading stocks and analyze the price and volume of the
major market averages. For example, when I see leading stocks break down and
distribution builds up in the market, I raise cash and wait for better
conditions. Here's the biggest challenge: Quantitative Easing (QE).

QE is a major wild card for the traders and investors who were taught these
methods. Since the Fed announced their never-ending QE policy, it feels like
almost every time I see warning signs and turn cautious, the market magically
picks up a bid and grinds higher. It is really amazing! If Taylor Swift wrote a
song about this market, it would be called the never, ever, ever, ever-ending
grind up higher. Trust me, I'm not complaining about it, I'm simply making the
point that it is challenging and forces you to adapt. I recently wrote a blog
post titled You Adapt, Evolve, Compete or Die. This is one of the major
things I was referring to in that post: Adapting to the QE market
conditions.

Another challenge is that it feels as if the major indexes are grinding
higher, but not individual stocks as much. For example, when the averages had
strong runs in 2003 and late 2010, TONS of leading growth stocks were up
300-700%. There are many stocks acting well in this current rally, but their
advances feel muted compared to some of the explosiveness I've seen in the past.
Again, you simply have to adapt to this.

Another major curve ball for investors is that we are in year 5 of a bull
market that began in March 2009. The solution for this is simple: Don't get
caught up in labeling markets! Who cares if you want to call it a bull market, a
cyclical bull within a secular bear, a monkey in a tree chasing a cat within a
traveling circus.it doesn't matter! Just stick with the terms uptrend
or downtrend and stop trying to be an economist about the whole thing.

So, back to the big challenge: What is someone who learned certain strategies
supposed to do when some of those teachings are not working? Be flexible and be
open-minded. No matter what strategy you use, you have to accept that things
won't work all the time. Don't get me wrong, I will ALWAYS stick to my
loss-cutting principles, but I will also make certain adjustments based on
market conditions. I can't tell you what to do because I don't know your time
frame, but one thing I can tell you is that you can't ignore the power of this
Fed-driven liquidity.